BUDGETING 101

Every Mickle

by Randy Rowe

Sunday, September 08, 2019

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I struggled initially to write this piece: I couldn't figure out a simple description which would get across to readers what budgeting is, and I certainly couldn't find a way to get it to sound nice and cool, the best I had was: Budgeting is the foundation for all sound financial management.

Now that's true, true and extremely boring.

It sounds like one of those ads they play during the evening news. So, my mission is to explain budgeting to you guys, in a way that won't have you skipping the page after the first paragraph.

Here we go. Budgeting helps drive every sensible decision you'll ever make with regards to money.

Want to afford that new car in three years? Want to buy that new car right now and need to know if you'll be able to live for the next three years and comfortably make payments? Want to get every pair of shoes in every shoe store in whichever Florida mall you plan to visit soon? Budgeting is key to getting there. It is a road map to financial success. Everyone can and should budget, regardless of how much (or little) money you make.

WHAT IS A BUDGET?

A budget is a financial plan listing money coming into your pockets (or money you plan to bring into your pockets), and money being spent (or planned to spend). That's essentially it. It's simple-sounding but, like many things, a lot harder when putting into practice. The first step on your journey to financial freedom should be the writing of a budget. There is no step, more necessary than this.

HOW DO YOU BUDGET?

A budget can be as simple, or as complicated as you wish it to be. For our purposes I'm going to use an imaginary friend, his name is Jerry.

Jerry has been living on his pay cheque for about a year now, but has never made a budget. Recently Jerry decided that he wants to be rich, very rich, so he's making some changes.

Step 1. He needs a budget. Now Jerry doesn't need an extremely complicated budget to start, so he did it the simple way that many do, he got a pen and paper and started to write. To create a budget, you only need two things.

1. A list of your income

2. A list of your expenses.

It is that simple. So Jerry started listing on his paper. Of course, there are other ways to budget, including Microsoft Excel, thousands of apps, or pay someone else to do it for you, but simply writing it out is an easy method that anyone can do. Let's get back to Jerry.

Here's what he wrote:

JERRY'S BUDGET

Monthly Income:

Salary (after tax) — $100,000

Hustle (Jerry sells phone cards to his co-workers) — $2100

Total Income — $102,100

Planned Expenses:

Savings (Jerry just started saving, pay yourself first) — $10,000

Utility Bills (light + water) — $4000

Internet (Flow Rave) — $4427

Cable (Flow Basic+ Sports) - $4000

Phone Bill (Digicel 2GB Data) - $6000

Groceries - $15,000

Haircut — $500

Commute (Jerry takes a cab to & from work) — $20,000

Entertainment — $25,000

Total Expenses — $88,927

So, what does this tell us (and Jerry)? Well, for starters, Jerry has a surplus, which means that Jerry has money left over when he subtracts his total expenses from his income. His surplus is $13,173. If his expenses were larger than his income then he would have a deficit, which is a popular problem.

Ok, so now that Jerry has a budget, he knows where to start on his journey of getting rich. This is where a budget shines, it allows you to plan as far in advance as you want and as you can see, writing a budget can be a very simple but fulfilling exercise. Any goal you may have, once you can get an estimate of how much it'll cost, you can use your budget to tell how long it'll take you to get to your goal. Jerry has decided that he wants a few things for himself, and now he has an idea of what he can or can't afford, and how long it'll take him to get there at his current income level.

Let's apply the first step he's learned here for ourselves. Fire up your laptop and open Microsoft Excel and start a list like Jerry's. You can even use your phone if you'd like or if you don't have a computer or would just rather do Jerry's method, then grab your pen and paper and get to writing. The method is less important than actually doing it, so get started, please.

Remember, all you need for a budget are the following 2 things:

1. Your income

2. Your estimated expenses

You subtract expenses from income to determine if you have a surplus (money left over after you've covered all expenses) or deficit (the money done and everything nuh covered). As I said earlier, the 'deficit' one is painfully common unfortunately, but the first step to fixing it, is to budget. Hope you enjoyed this simple starter piece.

See you next week!

Randy Rowe is a Strategy Consultant and Lead Writer at www.everymickle.com. He is NOT an investment advisor. He has made the same mistake pretty much everyone has made, of pretending that they “have a mental budget”. He knows better. He hopes you do too.


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